Saturday, June 21, 2014

B.C. Court Orders Google To Block Website To Enforce Trade Secrets

The borderless nature of the internet has caused courts all over the world to address thorny questions dealing with their jurisdiction. On June 13, 2014, the Supreme Court of British Columbia joined those ranks in its decision in Equustek Solutions Inc. v. Jack, 2014 BCSC 1063. Madam Justice Fenlon ordered Google to block a website selling products that were made in violation of trade secrets. 

Image by mikeleeorg
The Plaintiff manufactures networking devices that allow interoperability between industrial equipment made by different manufacturers. The underlying action is based on the Plaintiff’s contention that the Defendant, a former distributor of the networking device, conspired with one of the Plaintiff’s employees to make and market a competing product based on the same technology. 

In the main action, the Court made an interim order restraining the Defendants from carrying on business in B.C. through any website. This is where Google comes in. The Plaintiff sent Google several  requests to take down a number of URLs on which they alleged the Defendant was marketing the infringing product. Google acceded to each one taking down 345 individual web pages but refused to take down an entire category of URLs. The Plaintiff brought an application for an interim injunction against Google, ordering them to stop indexing a category of URLs identified by the Plaintiff. 

Google argued that the B.C. Supreme Court had no jurisdiction over it because it has no real and substantial link with the forum. Google also argued that even if the Court does have jurisdiction, the injunction should not issue because: 1) “it would amount to a worldwide order that could not be enforced”; and 2) It would pose an undue burden on Google’s business operations. Madam Justice Fenlon dismissed all of these arguments and granted the injunction. 


On the matter of jurisdiction, the Court referred to the controlling law in B.C., the Court Jurisdiction and Proceedings Transfer Act, which essentially codifies the principles of private international law set out by the Supreme Court of Canada in numerous decisions. S.10 of the law lists a number of connecting factors a court is to consider when deciding whether to assert jurisdiction over a person. Justice Fenlon found that two of the factors were applicable in this case: 

-       10(a) - the application was “brought to enforce, assert, declare or determine proprietary or possessory rights or a security interest in property in British Columbia that is immovable or movable property…”; and 

-          10(h) - the application “concerns a business carried on in British Columbia”.

The Court acknowledged that since most of the sales of the infringing product occurred outside of B.C., the s.10(a) factor, though applicable, was weak. Most of the Court’s energy is spent dealing with the question of whether Google carries on business in B.C. in the meaning of s.10(h).

Google’s argument that it does not carry on business in B.C. was based heavily on the Supreme Court’s ruling in Club Resorts Ltd. v. Van Breda, 2012 SCC 17. In that case, two Ontario residents were seriously injured (one died) while at a resort in Cuba. The Supreme Court confirmed the decisions of the Courts below in ruling that the Ontario Superior Court of Justice had jurisdiction over the claims because the contract between the parties was entered into in Ontario. The part of that decision that interested Google was where Justice LeBel said that “The notion of carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office there or regularly visiting the territory of the particular jurisdiction.”

The Court pointed out that Google failed to cite the very next sentence in which Justice LeBel admits that the comment above was made in obiter. Justice Fenlon distinguished the current case from Van Breda on the grounds that unlike that case, the current matter deals with e-commerce. Still, the Court agreed with the proposition that the mere fact that a person in B.C. can access a website does not automatically mean that the owner of the website is carrying on business in the Province. 

In order to determine whether Google is carrying on business in B.C., the Court turned to assessing the nature of Google’s service. The prevailing jurisprudence in the United States (which has been cited with approval by Canadian courts. see Braintech, Inc. v. Kostiuk, 1999 BCCA 169 [Braintech], Pro-C Ltd. v. Computer City Inc., [2000] O.J. No. 2823 (S.C.J.)) makes a distinction between active and passive websites. Passive websites are information based, offer little interactivity and tend to have a local focus. By contrast, active sites tend to be highly interactive, e-commerce oriented and multi-jurisdictional in focus. 

Despite Google’s claim that the search website is passive, the Court found that it was active. In addition to the fact that Google’s website has an international reach, Justice Fenlon honed in on the fact that when a person begins to type in the Google search bar, the website automatically anticipates the search request by serving up a list of potential search terms. She also noted that Google offered its advertising services to B.C. businesses (including the Defendants in the main action) and served ads to B.C. residents.

Google’s other arguments on why the injunction should not issue

An injunction is an extraordinary remedy that should only be granted if there is no other satisfactory remedy available at law. Google argued that there was another remedy available, namely to continue providing Google with takedown requests as they come. The Court disagreed. Given the fact that Google had already de-indexed nearly 350 URLs to no effect, the Court did not feel that forcing the Plaintiff to continue with this approach was an effective remedy.

On this point, the Court cited a French decision, Max Mosely v. Google France SARL and Google Inc., in which Google was forced to block images from its image search results. In that case, Rupert Murdoch’s News of the World secretly filmed Max Mosely engaging in sexual conduct. In a criminal trial, the newspaper was found guilty. At this point, however, the images were so widely circulated that one could find them by doing a simple Google search. As in the present case, Mosely asked Google to take down specific URLs and Google complied. The French court ordered Google to block the images entirely finding Google’s takedown process to be ineffective.

Google made arguments as to the enforceability of a B.C. Court order against them. Google is a Delaware Corporation based in California. Traditionally, injunctions are not issued against parties that reside outside of the Courts jurisdiction. The reason for this is simple: breaching the terms of an injunction amounts to contempt of court. Contempt is usually punished by fines and/or imprisonment. It is hard to enforce these measures against a party that does not reside or have any property located in a jurisdiction. 

While she did not address this point decisively, Justice Fenlon noted a recent trend of courts enforcing interlocutory injunctive orders made in other jurisdictions. She cites Cavell Insurance Co. Ltd. (Re) and Minera Aquiline Argentina SA v. IMA Exploration Inc. in which the Ontario Court of Appeal and the B.C. Court of Appeal respectively enforced or endorsed the enforcement of foreign interlocutory orders. She also noted that the Court could get creative should Google refuse to follow the order. For example, the Court could bar Google from undertaking any legal actions in the Province until the order is complied with.

Google also argued that an injunction should not be made against a person that is not a party to the main action. This general rule has two exceptions: 1) when the non-party knowingly disobeys the court order; and 2) when granting the injunction will “aid in the fact finding necessary to the administration of justice”. This second exception is what is often referred to as a Norwich order and is based on the U.K. House of Lords decision in Norwich Pharmacal Co. & Ors v Commissioners of Customs and Excise

The first exception obviously does not apply. Google argued that the Norwich line of cases should not be read to extend so far as to allow a court to restrain the conduct of a non-party. They argued that a court should only be allowed to compel an innocent party to produce documents for discovery purposes. The Court disagreed. 

While the Norwich case does not set a precedent for the kind of order sought in this case, Justice Fenlon makes clear that her equitable jurisdiction is not fettered by precedent. Courts of inherent jurisdiction are granted a broad discretionary power to award equitable remedies to ensure that justice is served. While Google is right that this order goes beyond the reasoning in Norwich, this does not seem to faze Justice Fenlon. 


This is an important decision that may prove to affect a wide-range of areas, not the least of which being intellectual property. While the IP rights at the heart of the main action were not important to the Courts reasons here, this case stands for the proposition that ISPs may be compelled to take down infringing content when they are not a party to the action. These reasons represent the continuing shift of courts adapting the law to the borderless internet. 

Classifying Google’s website as active seems to me to be the right decision. Search engines are nothing if not interactive. By their very nature they require the interaction of an individual to perform their function. The fact that Google’s advertising division services B.C. businesses and serves ads to B.C. residents in a targeted fashion also militates in favour of a finding that Google’s website is active in nature. 

One of Google’s arguments was essentially a lament that if the Court ruled against them, it would be a statement to the effect that an internationally used service like Google could be dragged into court anywhere in the world. I certainly understand their perspective. It is precisely that type of eventuality that the rules of international private law seek to avoid. That said, it seems that at least one judge is unwilling to let such trifling matters stand in the way of Equity!

Wednesday, June 11, 2014

Authors Guild v. Hathitrust: Book Digitization And Indexing Considered To Be Fair Use (And Transformative?)


On June 10th, 2014, the United States Court of Appeal for the 2nd Circuit handed down its decision in Authors Guild v. HathiTrust, a case dealing with copyright and the digitization of print books. The Court found that Hathitrust’s digitizing books for the purpose of enabling research constitutes fair use. 

Image by Renjith Krishnan
Hathitrust is an amalgam of 80 American universities and other institutions. Its mission is to digitize and preserve the print books contained in the catalogues of its constituent members. The Hathitrust Digital Library serves three different purposes: 

1) Search functionality – The digital library lets a user search for terms contained in books included in the database. For books that are currently protected by copyright, the search engine will not display any text unless expressly authorized to do so by the copyright holder; it will merely display page numbers of books contained in the catalogue in which the search terms appear.

2) Enabling individuals with “print disabilities” – Individuals with print disabilities are able to access full text versions of the books contained in the catalogue. Print disabilities includes people with perceptual disabilities such as blindness, but also includes individuals with other physical disabilities that would prevent them from being able to turn the pages of a print book. 

3) Book replacement – The system would allow member institutions to print replacement copies of physical books in their catalogues that have been lost, damaged or stolen (and a new copy cannot be obtained at a “fair price”).

District Court

The Authors Guild and other individual and institutional Plaintiffs sued Hathitrust in the District Court for injunctive and declaratory relief. Hathitrust moved for summary judgement arguing that its digitization project constituted fair use. It also argued that allowing access to full text versions of the books by individuals with print disabilities is protected by §121 of the U.S. Copyright Act (Also known as the “Chafee amendment”). 

The relevant portion of §121 reads as follows:

(a) Notwithstanding the provisions of section 106, it is not an infringement of copyright for an authorized entity to reproduce or to distribute copies or phonorecords of a previously published, nondramatic literary work if such copies or phonorecords are reproduced or distributed in specialized formats exclusively for use by blind or other persons with disabilities.
At the District Court level, the Trial Judge found that all three of the above listed functionalities constituted fair use. The Judge found specifically that the uses were “transformative”. In Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994), the United States Supreme Court determined that when the use of a copyright protected work is transformative in nature, it is more likely to be considered fair.

The Judge also determined that Hathitrust’s argument based on the Chafee amendment was sound. According to §121 authorized entity means: “a nonprofit organization or a governmental agency that has a primary mission to provide specialized services relating to training, education, or adaptive reading or information access needs of blind or other persons with disabilities”. The Trial Judge found that Hathitrust’s members could fit within that definition. 

Hathiturst also made an argument as to the standing of some of the Plaintiffs. The Court acquiesced here as well and struck certain institutional Plaintiffs, including the Writers’ Union of Canada and the Union des Écrivaines et des Écrivains Québécois, from the suit.

Appeal Decision

The Court of Appeal for the 2nd Circuit reviewed the case de novo. They found that the Trial Judge’s decision as to the standing of certain Plaintiffs was right in law. Those Plaintiffs were not themselves the owners or exclusive licensees of the copyright in the works of their members. 17 U.S.C. §501(b) only allows owners of “an exclusive right under a copyright” to sue for infringement thereof. 

Moving to the fair use argument, the Court of Appeal agreed with the Trial Judge that all three functionalities constituted fair use. The Court went through a rather detailed description of the fair use doctrine and its position of central importance to copyright law. 

The Court then undertook the four-factor analysis set out in §107 of the Copyright Act which sets out the following considerations for determining whether a use is fair:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.
Each of the three functionalities was submitted to this four-factor analysis. Dealing first with the search functionality, the Court found this to be a fundamentally transformative use of the work. For the use of a work to be transformative, the Court writes that there must be more than a mere repackaging or republishing. 

The Court of Appeal compares the search functionality with other instances of transformative use culled from the jurisprudence. It found that “Fulltext search adds a great deal more to the copyrighted works at issue than did the transformative uses we approved in several other cases”. One of the case pointed to was Prince v. Cariou (Discussed here), a case in which an appropriation artist used a photographer’s photos to create a collage type work. In that decision, the 2nd Circuit found that the use was transformative, even though the artist Richard Prince was operating in the same medium as Patrick Cariou, the photographer. 

The Court of Appeal more or less brushes off the second fair use factor as being inconsequential. They found that factors three and four favoured a finding of fair use.

In addition to being covered under the Chafee amendment, the Court found that the making available of full-text versions of the works for people with print disabilities constitutes fair use. This view was expressly endorsed by the U.S. Supreme Court in Sony Corp. of America v. Universal City Studios, Inc. Though the Court of Appeal found that the second factor militated against a finding of fair use, they found that factors one, three and four cut in favour of it. 

Finally, with regards to the preservation of books, the Court of Appeal felt that the matter was improperly dealt with by the District Court. They vacated the Trial Judge’s order and remanded this issue for a technical reason – namely that the record did not show that any of the Plaintiffs owned copyright in books that have been or are currently affected by this functionality. Since the U.S. Constitution only allows Federal Courts to hear actual “cases and controversies”, the Plaintiffs did not have standing with reference to speculative claims.


This decision is particularly important in light of the coming decision in Authors Guild v. Google, a case dealing with Google’s own book digitization project. One important factual difference between this case and the Google Books case is that when an individual searches for text in Google, the search engine will actually display snippets of copyright protected works containing the search terms. The Hathitrust Digital Library merely supplies the page numbers of the books in which the search terms may be found. This, however, seems far from dispositive given the Court’s emphasis on the transformative nature of full-text searchability of books. 

On that point, I have to disagree with the 2nd Circuit’s reasoning. While enabling the full-text search of entire catalogues of books is certainly innovative and useful, I am not sure it is transformative. When one thinks of a transformative work, one thinks of a remixing or mashing-up of existing content to create substantially new content. In the Cariou case cited by the Court of Appeal, the artist Richard Prince took photographs taken by Cariou and altered them in a visually obvious manner by superimposing other images onto them and adding visual effects. 

When Hathitrust (or Google) digitizes a book, the substance of the book remains exactly the same. While there is a format-shift taking place, there is no transformation of the work on a substantive level. Furthermore, even if there is a transformation, it is not being carried out by the people ultimately making use of the copyright protected work. 

While it carries no weight in the U.S., the Supreme Court of Canada’s decision in Alberta (Education) v. Access Copyright found that the relevant perspective for determining whether a dealing is fair is that of the end user of the copyrighted work. That case dealt with the ability of teachers in Alberta to photocopy portions of literary works in order to give their students reading and research projects. Access Copyright argued that because teachers made several copies of copyright protected works (one for each student), the dealing was less fair. The Court disagreed. It wrote that the relevant perspective was that of the student (the individual engaging in the protected activity, private study) and not the teacher who was merely acting as an intermediary. 

Applied to the current case, the 2nd Circuit asked and answered the wrong question. Instead of deciding whether Hathitrust’s digitizing is a transformative use of the copyrighted content (Which I think it is not), they should have instead asked if users interacting with the books in this novel way –i.e. searching the full-text of the book in order to find specific terms- is a transformative use of the book (which I think it is). I am therefore of the opinion that the 2nd Circuit reached the right result for the wrong reasons; and they did so employing an ill-fitting analysis.